Chapter XXII: Part 22

SECOND BANK OF THE UNITED STATES.—In October, 1814, Secretary Dallas laid a report before Congress, in which he deprecated the uncertain amount and value of the paper currency. “There exists,” he said, “at this time no adequate circulating medium common to the citizens of the United States. The moneyed transactions of private life are at a stand, and the fiscal operations of the government labor with extreme inconvenience.” He then recommended as the remedy the establishment of a national banking institution. A bill, based upon Dallas’s plan for such an institution, failed of passage in the House in 1814, and again in 1815, though passed by the Senate. It was, however, finally passed in an amended form, but was vetoed by President Madison.

On December 24, 1815, Mr. Dallas laid before Congress another plan for a national bank. A bill was framed authorizing such an institution, with a capital of $35,000,000, $7,000,000 of which were to be subscribed by the government, the central bank to be at Philadelphia, with power to establish branches, payments to be made in specie at all times unless otherwise authorized by Congress. This bill passed both Houses of Congress, and was signed by President Madison, April 10, 1816. When the subscription books of this bank were closed, it was found that the subscriptions fell short of the authorized $35,000,000 by $3,000,000, which amount was taken by Stephen Girard.

The bank could not lend more than $500,000 to the government without authority of Congress, was to be the fiscal agent of the Treasury, and to receive deposits of public moneys. No notes of a less denomination than $5.00 were to be issued, and the penalty for refusing to pay notes or deposits in specie on demand was twelve per cent per annum until paid. It began business January 7, 1817. Owing to the impending financial crisis and bad management, the bank verged rapidly toward insolvency, but was resuscitated under the vigorous management of a new president, Langdon Cheves, who was elected March 6, 1819. He was succeeded by Nicholas Biddle in 1823, who was destined to see the fall of the great institution.

The national bank incurred the hostility of the State banks, which called it a monster because it refused to allow the notes of the local banks to accumulate as deposits in its branches without redemption. Various States passed discriminating laws against it. Jackson, in his message to Congress in 1829, attacked the constitutionality of the law establishing it, and charged that it had “failed in the great end of establishing a uniform and sound currency.” At this time the Bank was an imposing institution with its capital of $35,000,000, its public deposits of six to seven million, its private deposits of a like amount, its circulation of $12,000,000, its annual discounts of $40,000,000, its annual profits of over $3,000,000, its palatial establishment in Philadelphia, its twenty-five branches throughout the Union, its five hundred employees, its stock distributed through nearly all parts of the world, and its notes current at par at home and abroad.

Jackson’s message was not received favorably by Congress. His aversion, it was thought, was due rather to his belief that the Bank was his enemy than to any dislike of a national bank. The growing hostility between him and Henry Clay induced the latter to make the renewal of the Bank’s charter a political issue. When the bill rechartering the Bank was passed in July, 1832, Jackson vetoed it, charging, in the main, that the Bank was a monopoly. This brought the question of the further existence of the Bank fully into the arena of politics, in the presidential election of 1832, with the “Hero of New Orleans” on one side, and on the other “monster monopoly,” “Old Nick’s money,” and “Clay’s rags.” Jackson won, and speedily decided to remove the public deposits from the Bank. This decision precipitated a bitter war between Jackson and Congress. But Jackson did not swerve from his purpose. By 1835 it became apparent that the Bank could not secure a renewal of its charter from Congress. As a confession of its defeat, and just thirteen days before the expiration of its federal charter, the Bank obtained from the State of Pennsylvania, February 18, 1836, a charter for the United States Bank of Pennsylvania, for a period of thirty years. Shorn of its importance, in a restricted field, yet with enormous capital, it fell into large bond and stock investments of questionable value. Its troubles were aggravated by bad management. It suspended during the panic of 1837 and the next year, and again for the last time in 1841. Biddle resigned the presidency in 1840, and four years later died poor and broken-hearted. Thus perished what is sometimes called the third Bank of the United States, its predecessor, the second Bank of the United States, having fallen a victim to political intrigue and loss of prestige. The shareholders lost their entire investment of $28,000,000, but the circulating notes were all paid, and also the deposits. The government got back its investment of $7,000,000, and made $6,093,167 besides, from its connection with the Bank.

STATE BANKS AND INDEPENDENT TREASURY.—After the removal of deposits from the Bank of the United States, September 26, 1833, the public revenues were deposited in selected State banks, sometimes called “pet banks.” In 1836 eighty-eight State banks in twenty-four States held public deposits to the amount of $49,377,986. As the State banks had thrown their influence against the national bank, they were rewarded by allowing them to use the public money intrusted to them as a basis of extending their loans and for enormous issues of their own notes. Banks were started for the sole purpose of issuing notes which they could use in buying public lands. As a consequence the government lost heavily through the depreciation of these notes and the failure of the banks. On July 11, 1836, the Secretary of the Treasury issued a circular forbidding the receipt of anything but specie in payment for public lands. This caused a run on the banks and aided in hastening the financial crisis of 1837. An act of Congress of June 23, 1836, authorizing the calling in of $37,468,859 of the public funds deposited in the State banks, for purposes of distribution, forced the suspension of specie payments by all such banks, with very few exceptions.

The unsatisfactory trial of both federal and State banks as custodians of the public funds led to the establishment of what became known as the independent Treasury system, by which the government collects its money and keeps it in the hands of the United States Treasurer or sub-treasurers, making disbursements when required. An act putting this system into effect became law July 4, 1840, but was repealed the next year. It was repassed August 6, 1846, and remained in operation until the passage of the National Currency Act in February, 1863, which gave the Secretary of the Treasury the right to designate certain national banks as depositories of public funds. There were in such banks, on February 4, 1899, United States deposits amounting to $81,120,873, secured by United States bonds belonging to the banks and deposited in the Treasury, amounting to $89,100,240. Prior to the adoption of the national banking system the country had a somewhat disastrous experience with what has been known as “wild-cat” banks. Many of them were organized for the sole purpose of issuing notes they never intended to pay. While they were numerous and dangerous, it must be remembered that in a number of States the leading banks carried on only a legitimate business, and State banks as they exist to-day compare favorably in their management with the national banks.

IV. HISTORY OF THE LEGAL-TENDER NOTE.

The first act authorizing the issue of legal-tender notes, known popularly as greenbacks, was approved by President Lincoln, February 25, 1862. It provided for the issue of $150,000,000 in notes, in denominations of not less than $5.00. Holders of these notes could deposit them with the United States Treasurer or assistant treasurers in any sum not less than $50.00, or any multiple thereof, and receive United States bonds bearing six per cent interest. The first notes were issued March 10, 1862. An act authorizing a second issue of $150,000,000 was signed by the President, July 11, 1862. Of these $35,000,000 were to be in denominations of less than $5.00. A third issue of $150,000,000 was authorized March 3, 1863, but this act deprived the legal-tender note of its convertibility into six per cent bonds at the option of the holder.

The withdrawal of this privilege worked no particular hardship at the time, for bond issues and various interest-bearing certificates were plenty during the period of war. But after the war had closed and the issues of new securities had ceased, the absence of this provision began to prevent the absorption of the legal-tender notes.

The highest amount of legal-tender notes outstanding at any date was on January 3, 1864, $449,338,902. Their depreciation was hastened by the issue of the short-time interest-bearing securities in large amounts. During 1862 the average gold premium was 113.3; during 1863, 145.2; during 1864, 203.3. In July, 1864, this premium reached its highest point, an average of 258.1.

In 1865 the country began to feel the necessity of a contraction of the currency, with a view to as early a resumption of specie payments as the business interests would permit, and the Congress expressed the public sentiment by an almost unanimous resolution. On March 12, 1866, an act was approved calling for the retirement and cancellation of not more than $10,000,000 of legal tenders within six months, and thereafter not more than $4,000,000 during any one month. The effect was to reduce the legal tenders outstanding on December 31, 1867, to $356,000,000.

This reduction, together with the rapid payment of notes of other classes, used as currency, led to so sudden a contraction of the circulating medium, and such stringency in the money market, that Congress, by act of February 4, 1868, prohibited the further reduction of the legal-tender notes. The amount outstanding, October 1, 1872, was $356,000,000, and on January 1, 1874, $382,979,815, the increase being due to a construction on the part of secretaries of the Treasury to the effect that they had power to reissue retired notes which were held as a reserve. On June 20, 1874, Congress enacted that the United States notes outstanding and to be used as part of the circulating medium should not exceed $382,000,000, and that no part thereof should be held or used as a reserve.

Another attempt was made in 1875 to reduce the aggregate of legal-tender notes, preparatory to the resumption of specie payments. The Resumption Act of January 14, 1875, authorized, among other things, the retirement and cancellation of legal tenders till the amount outstanding should be reduced to $300,000,000; $35,318,984 were retired under this law, but further reduction was prohibited by act of May 31, 1878. The amount outstanding at that date was $346,681,016, and this has continued to the present time, no new issues having been authorized.

On January 1, 1879, the resumption of specie payments took place as provided in the act of January 14, 1875. At this latter date, the only legal-tender coin recognized by law was the gold coin. But, in February, 1878, the coinage of standard silver dollars was authorized, and they were to be a legal tender for all debts, unless otherwise expressly stipulated in the contract. This led to the claim on the part of those who favored silver that the redemption of legal-tender notes, provided for in coin in the act of 1875, could be effected by the use of silver dollars. But the general, and doubtless sound, construction of the law of 1875 has been that it was an express contract to redeem the legal-tender notes in the coin then recognized as legal tender, and in no other; and so the Treasury has redeemed legal tenders since 1879, in gold, when the same is demanded.

In 1869 the United States Supreme Court, the bench not being full, declared the acts authorizing legal-tender notes to be unconstitutional. But subsequently, the bench having its full quota of nine, the Court sustained the constitutionality of the acts, on the ground, mainly, that they were a proper exercise of the war power vested in the Congress. In 1883 the Court decided that the reissues of these notes, made in time of peace, were constitutional.

At the time of the resumption of specie payments there were $135,000,000 in gold and bullion on hand to provide for the redemption of such notes as might be presented. By Act of July 12, 1882, it was provided that when the redemption reserve of gold coin and bullion in the Treasury fell below $100,000,000, the issue of gold certificates should cease. This is held to indicate that Congress regarded $100,000,000 as the limit below which the redemption reserve should not be permitted to fall.

If this reserve had not been called upon to bear other burdens, there would probably never have been any doubts as to its sufficiency. In 1878, however, began the coinage of silver dollars and the issue of silver certificates. These notes were kept at par in gold by their interchangeability in the operations of commerce for legal-tender notes. They were thus an indirect charge on the gold reserve. From 1878 to 1890 they were increased at the rate of over $2,500,000 a month. In that year (July 14, 1890) an act was passed providing for the issue of Treasury notes in the purchase of silver bullion, which provided also for the coinage of some of the bullion purchased into silver dollars. These Treasury notes were redeemable both in gold and silver, and as the government never availed itself of its option to redeem in silver when gold was demanded for them, these notes as they were issued became a further burden on the gold reserve provided for the legal-tender notes.

By the beginning of the year 1893 the legal-tender notes, silver certificates, and Treasury notes had reached an aggregate of nearly $800,000,000, all depending on the Treasury reserve for gold redemption.

This reduction of the percentage of gold held to the amount of the demand liabilities raised doubts as to the ability of the government to maintain gold payments, and the legal tenders and Treasury notes were presented for redemption. The depletion of gold was so great that on one or two occasions there was danger that the reserve would be exhausted, and resort was had to the sale of bonds to procure gold to replenish the reserve.

The issue of further Treasury notes was stopped by the repeal of the act of 1890 in November, 1893, and since this repeal confidence in the ability of the Treasury to maintain gold redemptions has been gradually restored.

Under the provisions of the Act of May, 1878, the legal-tender notes when redeemed cannot be canceled. They must be paid out again, and therefore when reissued, they may again be presented for redemption. This constitutes the so-called endless chain by which the gold in the Treasury is always liable to be drawn out.

V. THE NATIONAL BANKING SYSTEM.

The desirability of perfecting the banking and currency system of the country was readily perceived on the breaking out of the Civil War in 1861. Secretary Chase in two annual reports, those of 1861 and 1862, recommended a system of national banks, whose supervision should be by national authority, and whose issues of notes should be based on deposits of bonds of the government. After several unsuccessful attempts, a bill, introduced by Mr. Sherman, passed both Senate and House, and became a law February 25, 1863. This act embodied the essential features of Mr. Chase’s reports. Under it the first charter was issued to the First National Bank of Philadelphia.

The formation of national banks proceeded very slowly at first. In order to hold out greater inducements for the State banks to enter the national system, the act was amended on June 3, 1864. The first report of the Comptroller of the Currency, November 28, 1863, showed that only 134 national banks had been organized up to that date; but when the act of June 3, 1864, went into operation, new banks were formed more frequently. A more rapid increase took place after the passage of the act of March 3, 1865, imposing a tax of 10 per cent on the circulating notes of State banks. This increase was from 638 banks in January, 1865, to 1513 in October of the same year; with an increase in capital of from $135,618,874 to $393,187,206; and in circulation of from $66,769,375 to $171,321,903. Prior to 1869 national banks were required to make their reports on fixed dates, but after March 3, 1869, they were required by law to make their reports to the Comptroller five times a year on some past date fixed upon by the Comptroller.

NATIONAL BANK LAWS AND REGULATIONS.—The national banks are under the supervision of the Comptroller of the Currency, who is appointed by the President on the recommendation of the Secretary of the Treasury. His salary is $5000 a year.

A national bank may be organized by any number of persons not less than five, on permission of the Comptroller. The capital required is not less than $50,000 in any case, and this minimum applies only to towns the population of which does not exceed 6000; in cities having a population exceeding 50,000, the minimum capital is $200,000. For places having a population over 6000 and not exceeding 50,000, the capital required is $100,000. One half of the capital must be paid in before the bank is authorized to begin business, and the remainder in installments of not less than 10 per cent on the entire amount of the capital, as frequently as one installment at the end of each succeeding month from the time it is authorized to begin business. Capital stock is divided into shares of $100 each.

The banks are managed by a board of not less than five directors, chosen by the stockholders. Executive officers of the bank—president, vice-president, cashier, and assistant cashier—are chosen by the directors.

Shareholders are individually liable for the debts, contracts, and engagements of the bank to the extent of the amount of their stock therein, at the par value, in addition to the amount invested in such shares. This is what is known as the double liability of shareholders, and is one of the features adding to the strength of the system.

National banks are designated by the Secretary of the Treasury to act as depositaries or custodians of public money. Such deposits are secured specially by a deposit of United States bonds with the Treasury.

All national banks before commencing business are required to transfer and deliver to the Treasurer of the United States, as security for their circulating notes, United States registered bonds to an amount not less than one fourth the capital where the capital is $150,000 or less, and to the amount of $50,000 where the capital is in excess of $150,000. These bonds must be taken by the banks whether they issue circulation or not.

Circulating notes are issued to national banks on a deposit of United States bonds with the Treasurer. Notes are limited to 90 per cent of the par value of the bonds, also to 90 per cent of the capital of the bank. They are over-secured, and no holder of them has ever lost a dollar by reason of the failure of a bank.

The notes are secured by the government bonds, there being a difference of the 10 per cent between the par of the bonds and the notes issued, and the bonds nearly always command a premium. They are further secured by the first lien on the assets of the bank, including the double liability of shareholders, by a 5 per cent redemption fund in the Treasury, and also by the margin between the capital and the amount of notes permitted.

National bank notes are redeemable at the counters of the issuing banks and at the Treasury in “lawful money” of the United States. This term, as commonly used, means legal-tender money, and in practice, perhaps, gold coin or legal-tender notes.

Reserves of national banks are the amounts of money kept on hand to pay their deposits and current checks and drafts. This reserve is to be kept in lawful money,—gold and silver coin or certificates, and United States currency certificates or legal-tender notes. There are three central reserve cities, namely, New York, Chicago, and St. Louis. National banks in these three cities must keep a reserve of 25 per cent against their deposits, and this amount must be kept in their own vaults. There are twenty-four other reserve cities which are also required to keep a reserve of 25 per cent, but one half of that amount may be due from other banks in New York and other central reserve cities, approved as reserve agents by the Comptroller of the Currency. Banks outside of these reserve cities must keep a reserve of 15 per cent, three fifths of which may be due from approved reserve agents in the reserve cities or central reserve cities.

In times of panic when there is a run on banks they may use this reserve to pay their depositors, and it often happens that the reserve falls below the amount required by law. Under such circumstances the Comptroller may notify the banks to make good the deficiency; failing to comply with this request within thirty days, they may be closed.

National banks are not permitted to make loans on real estate. The regulations prescribed by the law for the management of these institutions are very stringent, supplemented by a system of examination and reports.

In 1896 the Comptroller of the Currency estimated that the government had made a net profit of $157,439,248.98 out of the revenues derived from the national banks. It was estimated in the same report that the average percentage of dividends paid to creditors of insolvent national banks was 75 per cent. There have been no losses on circulation. In 1878 the Comptroller estimated that the annual losses upon all the currency issued by State and private banks amounted to 5 per cent annually.

The national banks are not monopolistic. Any body of five reputable citizens can form one by getting together $50,000 capital. The total shares of the national banks are approximately 300,000.

Profits on national bank stock are not exorbitant. For a period of twenty-nine years the net earnings on capital and surplus have been only a little over 7 per cent.

Since the establishment of the national banking system 5171 banks have been organized, of which 1224 have gone into liquidation, 368 have become insolvent, and 3579 are in operation (February 4, 1899).

There is a marked falling off in the number of new national banks organized in recent years. In 1890 there were 307 organized, but in 1898 there were only 50 organizations reported, and that was the highest number reported since 1893. The capital of the national banks is also decreasing, but the deposits show a large increase.

At present the State banks are gaining in numbers more rapidly than the national banks.

PROFIT ON NATIONAL BANK CIRCULATION.—Many suppose that national banks make an undue profit on the privilege they have of issuing notes to circulate as money, based on a deposit of bonds with the United States treasurer. Official figures disprove this. The total national bank notes outstanding, February 4, 1899, was $203,636,184.50. The law permits these banks to issue notes to the extent of 90 per cent of their capital. This capital, on February 4, 1899, was $608,301,245. Therefore they might have had notes at issue on that date to the amount of $545,871,120.50, instead of only $203,636,184.50. This is conclusive evidence that there is no substantial profit in the issuing of such notes.

In the figures furnished by the Comptroller of the Currency for 1898, he shows that the profit which a national bank could make by taking out circulation on a deposit of $100,000 of United States bonds, on October 31, 1898, was less than 1 per cent. On that date eight leading banks had no circulating notes at all out. The meagre profits of national banks explain why they do not supply an adequate paper currency. The restrictions on them make it impossible to render any substantial assistance to business in this respect. This is especially true in times of panic. Possessing gigantic strength, they are compelled to see the industries of the country attacked by doubt and distrust, and are unable to go to their aid because of the restraints which forbid them to exercise their legitimate functions.

VI. FOREIGN BANKING AND FINANCE.

Most foreign countries issue metallic money only, except those that are on a paper basis. In general the paper currency is issued by banks, many of which are more or less remotely associated with the government. Some of these banks issue notes on the security of the government or other stocks and bonds, while many emit notes based on no special form of security, but upon the general assets of the bank.

As compared with the United States there are but few banks in the principal foreign countries. England has less than one hundred; Scotland less than a dozen; Canada but thirty-eight chartered banks. As in other foreign countries, the Canadian banks have numerous branches affiliated with the head office. National banks in the United States are prohibited from having branches. The Bank of France, the Bank of England, the Imperial Bank of Germany, the Austro-Hungarian Bank, the Imperial Bank of Russia, are all more or less intimately associated with their respective governments.

The Bank of England was incorporated by royal charter, July 27, 1694, its incorporators lending £1,200,000 to the government, in return for which the Bank was permitted to issue notes to a like amount. It had a practical monopoly up to 1826, and even now, it is believed, no bank within a radius of 65 miles of London may issue notes. It has suspended specie payments more than once. In 1844, the banking and issue departments of the Bank were separated. One fifth of the reserve may be silver, though in practice the reserve is kept in gold coin and bullion. Its notes are based on gold, except £16,800,000, which are secured by the government debt and other securities. It is compelled to buy all gold offered at a fixed price, paying for it in notes. So it must redeem all notes on demand in gold. When so redeemed they are canceled and, after five years, burned. No notes of a less denomination than five pounds are issued. The Bank checks gold exports by raising the rate of discount. The building covers about four acres of ground, and employs over eleven hundred persons. It is the keystone of the entire system of British credit, and commands the assistance of the Government when needed.

The Scotch banks issue notes on their own credit to the amount outstanding at the time of the passage of the Bank Act in 1844. Their rate of interest is said to be the same at all of their thousand offices. A unique feature of the Scotch banking system is that of cash credits, by means of which a person of good credit may get his checks cashed without a deposit of actual money, the banks simply entering the credits on their books.

The Bank of France has a monopoly of note issues, charges a premium on gold for export, and may redeem its notes in either gold or silver. The Imperial Bank of Germany and a few other German banks issue notes on gold and other securities, and further amounts on their general credit. Beyond a fixed sum, called the emergency circulation, a tax of five per cent is levied. Other European banks are generally modeled on the same leading principle—a central bank of issue, with numerous branches, and associated with the Government directly or indirectly. The Imperial Bank of Russia issues notes practically covered by gold and redeemable in that coin. Japan tried a system of national banks combined with Government paper money, but is now substituting a system of bank notes issued by the Bank of Japan.

VII. UNITED STATES GOVERNMENT DEBT SINCE 1857.

In 1857 the Government owed only $10,000,000 over and above the cash held in the treasury. At the breaking out of the Civil War the debt had increased to about $80,000,000. By August 31, 1865, it had increased to $2,756,000,000, with an interest charge of $150,000,000. In twenty-eight years, down to June 30, 1893, the Government extinguished $1,917,500,000 of its debt, paid $2,364,000,000 for interest on its debt, and $118,000,000 for premium on bonds redeemed, making a grand total of $4,400,000,000, or an annual average payment of $157,000,000 for the entire period.

The rise and fall of the public debt from July 1, 1857, to July 1, 1898, appear more fully in the following table.

-----------------+---------------+------------------
Years. | Total debt. | Debt less cash in
| | the Treasury.
-----------------+---------------+------------------
1857, July 1 | $28,699,831 | $9,998,621
1860, ” 1 | 64,842,287 | 59,964,402
1861, ” 1 | 90,580,873 | 87,718,660
1862, ” 1 | 524,176,412 | 505,312,752
1863, ” 1 | 1,119,772,138 | 1,111,350,737
1864, ” 1 | 1,815,784,370 | 1,709,452,277
1865, August 31 | 2,844,649,626 | 2,756,431,571
1873, July 1 | 2,234,482,993 | 2,105,462,060
1879, ” 1 | 2,245,495,072 | 1,996,414,905
1889, ” 1 | 1,619,052,922 | 975,939,750
1893, ” 1 | 1,545,985,686 | 838,969,475
1895, December 1 | 1,708,871,670 | 948,477,612
1896, July 1 | 1,769,840,323 | 955,297,253
1897, ” 1 | 1,817,672,665 | 986,656,086
1898, ” 1 | 1,796,531,995 | 1,027,085,492
-----------------+---------------+------------------

In 1865 the annual interest charge on the public debt was $150,977,697. In 1898 it was only $34,387,408.

From 1791 to 1898 the gross receipts of the Government were $30,547,063,336.06 and the gross expenditures $29,768,597,237.24. The net ordinary receipts, which do not include loans or proceeds from the issue of Treasury notes, were $405,321,335.20 for the fiscal year ended June 30, 1898, and the net ordinary expenditures, which do not include payments on account of premiums or interest on the public debt, were $405,783,526.57.

VIII. POSTAL SAVINGS BANKS.

Many believe that a system of postal savings banks could be generally introduced into the United States. Such banks doubtless appeal to those who have more confidence in the Government than in any association of individuals. Their safety may be conceded, for when the Government fails other institutions are likely to go the same way. But when people deposit money in a postal savings bank, they make a loan to the Government. This implies that the Government must be a perpetual borrower, whereas, until recent years, the United States has been a debt-paying nation, and in the course of affairs may soon be again. Unless we are to have a large permanent debt, the deposits in postal savings banks would have to be invested in general securities. Such investments could not well be made by the post-office officials of the country.

In Great Britain these banks have been in existence for about thirty-eight years, and their number has grown to about 12,000, with more than 6,000,000 depositors. The system prevails in a number of other countries. The more concentrated and paternal system of government prevalent in countries having these banks renders their management a much less difficult problem than it would be in the United States with our large areas, vast number of post-offices, and general diversity of conditions. In Great Britain the deposits in the postal savings banks are made at the money order post-offices in a pass book held by the depositor. Withdrawals are made by filling up blank forms, and these withdrawals may be made at any money order post-office. Deposits are invested in the public debt, and the rate of interest is about two and one half per cent. The postal savings banks of Great Britain contain deposits approximating $527,000,000; those of France, $152,000,000; those of Italy, $90,000,000; those of Belgium, $67,000,000; those of Canada, $31,000,000.

IX. SAVINGS BANKS IN THE UNITED STATES.

There are no worthier financial institutions in the country to-day than the savings banks. Most of these are organized on what is known as the mutual plan. They have no capital, no stockholders, and all the assets are held in trust for the benefit of the depositors. They are managed by a board of trustees, who serve without pay. The investments which the banks are permitted to make are generally restricted to high-class securities insuring safety. The savings banks in New York State, especially, are closely restricted in investing their funds, and failures in recent years are almost unknown. A deposit in one of these banks is hardly less safe than an investment in Government bonds. The savings banks are the primary schools of economy and thrift, and I believe that an extension of the mutual savings bank system throughout the country, under proper legal safeguards, would be of the greatest benefit to the people of the United States.

The deposits in banks of this kind are usually limited by law to amounts not exceeding $3000 to one depositor, as they are not intended to be used by the wealthier class of people. The following statistics will be found interesting.

SAVINGS BANKS IN THE UNITED STATES, 1857–1897.

(Statement of condition for each period of ten years.)

---------------------+-----------+------------+------------+-
| 1857 | 1867 | 1877 |
---------------------+-----------+------------+------------+-
Number of banks | 231| 371| 675|
Number of depositors | 490,428| 1,188,202| 2,395,314|
Amount of deposits |$98,512,968|$337,009,452|$866,218,306|
Average to each | | | |
depositor | 200| 283| 361|
---------------------+-----------+------------+------------+-

---------------------+--------------+--------------
| 1887 | 1897
---------------------+--------------+--------------
Number of banks | 684| 980
Number of depositors | 3,418,013| 5,201,132
Amount of deposits |$1,235,247,371|$1,939,376,035
Average to each | |
depositor | 361| 372
---------------------+--------------+--------------

In addition to the mutual and stock savings banks in the United States, a system of school savings banks, introduced into the schools of the United States by J. H. Thiry, of Long Island City, N. Y., is worthy of mention. Such banks have been very successful in inculcating habits of thrift and economy among the children of the country.

X. THE CLEARING-HOUSE.

A clearing-house may be defined as an institution for saving time, money, and labor. Its underlying principle is that of setting off one claim against another.

A bank in a large city receives every day in its mail a great number of checks or drafts drawn on banks in the same place. It does not present these checks directly to the banks on which they are drawn for payment, but sends them by messenger to the clearing-house. Let us say, for illustration, that the First National Bank presents to the clearing-house checks on other banks amounting to $100,000. At the same time the other banks send to the clearing-house checks they have received drawn on the First National Bank, aggregating $75,000. A payment of $25,000 in money to the First National Bank will be all the cash required to pay checks representing $175,000. The economy in the use of money is still better illustrated by the following statement of an actual transaction. On a day in the latter part of 1898 the Bank of the State of New York took to the New York Clearing-House checks on other banks amounting to $15,647,583.82, and other banks brought checks against it amounting to $15,647,401.85. The sum of these items was $31,294,985.67, and they were paid with $181.97 in money, which represents the credit balance due to the Bank of the State of New York. This instance shows what large transactions may be effected with small sums of money by employing proper banking machinery. Banks multiply the usefulness of money many fold.

The New York Clearing-House Association was organized September 13, 1853, and the first clearing made by the Association took place on October 11, 1853. The banks belonging to the New York Clearing-House Association reported on April 1, 1899, loans and discounts, $779,951,100; deposits, $898,917,000; specie, $187,114,300; circulation, $13,870,600.

CLEARING-HOUSE LOAN CERTIFICATES.—These are simply devices that the banks have invented for use in times of panic. They are issued by a committee of the Clearing-House Association on the deposit of approved securities by the bank desiring them, and are used only to settle balances between the banks. They are not money, but serve a useful purpose in diminishing the demand for money; for when the banks agree to accept these certificates among themselves, it makes that much money available to be loaned or paid to depositors. In 1893, and in other years of financial stringency, the issue of these certificates afforded great relief to business interests and saved the country from some of the most disastrous results consequent upon such panics.

These certificates are not to be confounded with clearing-house gold certificates issued by the Association on deposits of gold coin. They are used in making payments of balances between banks, and obviate the necessity of frequently passing the actual coin from hand to hand.

On April 11, 1898, the clearings at the New York Clearing-House for that day amounted to $352,882,567—the largest amount ever reported up to that time. The balances to be paid in money were $17,345,452, or only about five per cent. For the year 1898 the bank clearings at New York were $41,971,781,684, and for the whole country, $68,750,000,000.

An investigation of the amount of credit paper used respectively in the wholesale and retail trade was made by the Comptroller of the Currency in 1896. In his report for that year the Comptroller says: “From the face of the returns the conclusion to be drawn is that 67.4 per cent of the retail trade of the country is transacted by means of credit paper (checks), that 95.3 per cent of the wholesale trade is so carried on, 95.1 per cent of business other than mercantile, and 92.5 per cent of all business.”

XI. PANICS AND THEIR CAUSES.

A panic is generally due to inflation and speculation, and these, of course, have their origin in various sources not easily determined. An unusual increase in the production of precious metals, bountiful crops, a speculative craze taking possession of the public—such as the tulip mania in Holland—all these and many other causes lead to speculation. The fall in prices due to a stoppage in speculation brings on the panic. Sometimes the catastrophe is produced by war or rumors of war, often by the most trivial circumstances, and not infrequently without any apparent cause. Before everybody had desired to buy; they now became as eager to sell, and this rush to convert securities and commodities into money precipitates a panic.

Crises may be divided into commercial and financial. The last one in the United States, whatever may have been its ultimate developments, was in its inception and culmination essentially a financial panic. The Treasury and the banks were both regarded with more or less distrust.

Panics or crises more or less severe have occurred in the United States in 1814, 1818, 1826, 1837–39, 1848, 1857, during the Civil War, 1861–65, 1873, 1882, 1884, 1890, 1893. Some of these should hardly be called panics, as they were mere local disturbances. Different causes have been given for each of these revulsions. Overtrading and speculation were doubtless responsible for them. The panic of 1857 was coincident with large net imports of merchandise. On August 24, 1857, the onward wave of prosperity, which had been steadily rising to a great height, received a check by the failure of the Ohio Life Insurance and Trust Co., followed by numerous other failures. On October 4 every bank in New York, except the Chemical, suspended specie payments, and they did not resume until December 12.

The speculation in gold in 1869 culminated in what is known as the Black Friday panic, September 24, 1869. Fiske and Gould were conducting a speculation in gold, and sought to corner it. They forced the price up to a high figure, but the Government suddenly appeared as a seller of gold and broke the “corner.”

The year 1873 witnessed another revulsion of confidence and another disruption of the commercial and financial affairs of the country. Business had long been unduly expanded, and the collapse finally came. The failure, on September 18, of the honored firm of Jay Cooke & Co., which had not only been identified with the building of the Northern Pacific R. R. but had been a strong supporter of the credit of the Government when it was in the direst distress, was the first bad news. House after house fell. The Stock Exchange closed its doors on September 20, and did not reopen them until September 30. More than fifty Stock Exchange firms suspended, and several of the leading banking institutions of New York and other cities had to stop business.

During this panic the New York Clearing-House Association issued clearing-house certificates to those of its members who needed available funds, and during the trouble issued $24,915,000 of them. In May, 1884, it issued $24,915,000; in the 1890 panic, $16,645,000; in 1893, $41,490,000.

Following the resumption of specie payments the times were good for several years. The production of the precious metals was averaging $75,000,000 or more per year. From 1879 to 1883 we imported about $190,000,000 of gold. Railroad construction reached a higher point than was ever recorded, either before or since, nearly 40,000 miles of track having been laid in five years. All seemed well, when another collapse came in May, 1884. This was preceded by the failure of Grant & Ward, and it was followed by the failure of the Marine and the Metropolitan Ranks. The disclosures of bad faith on the part of men occupying positions of great trust, made the 1884 panic one of distinct characteristics of its own. The previous activity in all lines of enterprise may have made the revulsion timely, but individual dishonesty greatly aggravated the situation.

The panic of 1890, in the United States, was but a reflection of the great Baring failure in London in the fall of that year. This crash was due to South American speculations, and was one of the greatest failures of modern times. It is the opinion of many well-informed financiers that this was one of the causes which operated to produce the panic of 1893 in the United States. The course of the United States in regard to the purchase of silver, doubts as to the tariff, deficiency in revenues—all, perhaps, had their share in creating distrust. But back of these were the conditions superinduced by an era of inflation and speculation. The 1893 panic bore most heavily upon the banks. There was a continued demand upon the Treasury for gold, and the deposits in banks were withdrawn so rapidly that hundreds of failures ensued. The period of depression continued for nearly three years, and has been succeeded by an era of general prosperity, which it is hoped may be long continued.

THE CENTURY’S PROGRESS IN FRUIT CULTURE

BY H. E. VAN DEMAN,

_Late Prof. of Horticulture, Kansas State Agricultural College_.

From the earliest histories of civilization we learn that the cultivation of fruits has been a delightful pastime and also a substantial means of living. Their tempting colors, fragrant perfumes and luscious flavors are unequaled in combined attractiveness and satisfaction to the human senses by anything else among all the products of nature. Their juices are at once appetizing, nutritious, and wholesome. Millions of people have subsisted upon them largely, from time out of mind.

It is, therefore, not a matter of wonder that our forefathers, when they came to the shores of this New World, brought with them seeds, cuttings, and plants of the best fruits they had at their old homes. Thus it was that the apple, pear, peach, plum, cherry, grape, olive, date, almond, European walnut and chestnut, and many other less valuable fruits were first cultivated in North America.

THE BEGINNING.—Previous to the beginning of the nineteenth century there had been considerable development in fruit culture in the colonies. Small apple orchards were quite common in the settlements, from New England to the Carolinas. The pear, peach, plum, grape, and a few other fruits were cultivated in less degree. The Spanish had introduced the peach and orange in Florida, and the French had planted the grape and pear in their sparse settlements in the Mississippi Valley and near the Great Lakes. There are to-day, and yet in a healthy condition, near Detroit, Michigan, several immense pear-trees from these first plantings, that are nearly three hundred years old. The Catholic fathers planted the vine and the olive, and occasionally the date palm, at their mission stations along the Rio Grande and on the Pacific coast.

Thus we see that when the year 1800 ushered in the century now closing, there were many feeble beginnings in the way of fruit culture scattered over the Continent. The Indians, contrary to what we might have supposed, helped materially in the distribution of some of the orchard fruits. In 1799, when General Sullivan made his famous raid against the tribes which composed the historic “Six nations,” he found bearing apple orchards in Western New York. In Southern Canada and Michigan the Indians occasionally planted the apple and pear. The tribes living along the Gulf of Mexico had peach-trees in their little cultivated patches, having obtained the seeds from the Spaniards; and to-day we find the descendants of these Spanish or “Indian” peaches commonly grown throughout all the Southern States, and to some extent all over the peach-growing sections of America.

THE EXPERIMENTAL STAGE.—During the life of the generation which existed for the first thirty or more years of the century the culture of fruits was still principally in the experimental stage. Some of the foreign species and varieties had not proved satisfactory, and they were being critically tested or abandoned. New varieties were being originated on our own soil. Our native fruits were being brought under culture, too, and with the most satisfactory results in many cases. It was learned that we had in them the foundation of almost unlimited development. Their progeny has revolutionized some lines of fruit culture. This is especially true in our vineyards and berry-fields.

There were men of noble and patriotic cast of mind, who devoted their lives to the development of this lovely and wholly humane work. They deserve to rank beside the heroes of our battlefields. Their victories were those of peace, and were followed by an increase of the delightful products of the orchard, vineyard, and garden.

Once that our forefathers were free from the bondage of European greed, this art of peace kept pace with our civilization on other lines. There is nothing in the whole list of our scientific attainments or material industries that can show more substantial progress. Nor is there a nation on earth that has so rich, varied, and adaptable soils, together with climatic conditions so admirably and generally suited to fruit culture; nor a people more alive to their opportunities in this direction.

THE AGE OF PROGRESS.—During the generation of fruit growers who lived from about 1830 until the time of the Civil War, the region lying between the Alleghany Mountains and the Missouri River, and extending from the Ottawa River in Canada to the mountains of Tennessee, which is now the great apple bin of America, as well as its granary, was being rapidly filled with energetic settlers. These pioneers carried with them carefully selected seeds, cuttings, and trees of the best varieties of fruits known in their Eastern and Southern homes. These were planted in the rich, virgin soil of the new territory, which was then known as “The West.” Under the happy influences of a congenial climate and careful cultivation, they developed into fruitful orchards and vineyards, yielding finer specimens, and, in some cases, larger crops than had ever been known in the older parts of the country. This gave a great impetus to the culture of fruits. The first large commercial orchards of the apple, peach, and pear in the central United States were then being planted in Michigan, Ohio, Indiana, and Kentucky.

The South had not yet awakened to a knowledge of her possibilities in fruit culture. Under slave labor the land was almost solely given up to cotton and tobacco. Florida had not then even dreamed of her wonderful developments in orange culture. In Missouri, Kansas, Arkansas, Texas, and the great Northwest, where now there are fruit plantations of almost unparalleled extent, only the first trees and plants were being set, and it was only thought _possible that some day_ fruits could be produced in abundance there. The Rocky Mountain and Pacific States had scarcely been heard of, even as Territories, and only an occasional plantation of vines and trees around some mission station could be found.

THE AGE OF TRIUMPH.—At the close of the Civil War, which had somewhat distracted the attention of our people both North and South from the progress of the peaceful arts, there was a great expansion of our rural population. The love of travel had taken possession of many who had been in the armies. They were no longer content with the narrow boundaries and the poor lands of the old Eastern farms. They wanted new fields for their energies. The building of the great railroad systems across the continent solved the question of the settlement of the “Far West,” and the mythical “American Desert” that was supposed to lie this side of it. The prairies were covered with homesteaders’ shanties, sod houses, and “dug-outs.” The forests of Michigan, Wisconsin, Minnesota, Missouri, and Arkansas fell before the axe of the pioneer. The “Boys in Blue” who had seen the natural advantages of the Southern States, while there on the dread errand of war, began the rehabilitation of the country they had helped to devastate. They took with them their Yankee notions and Western vim, and planted many kinds of farm crops, trees, vines, and berry bushes upon the old plantations where little else than cotton and tobacco used to grow. Florida was veritably turned into a garden of orange trees and truck patches. The chocolate hills and rich black lands of Texas were planted to grapes, peaches, and berries. The dry plains and mesas of the Rocky Mountain region, that were naturally almost devoid of vegetation, were irrigated and made to produce the most delightful fruits in abundance. The giant forests of Oregon and Washington were invaded by the lumberman and the homeseeker, and in their stead were planted trees which yielded the largest and best of fruits. And California,—what shall we say of her wonderful valleys, grassy foothills, and timbered mountain slopes? All of the fruits of the temperate zones are growing there, and in some places the hardier of the tropical kinds succeed. California is indeed a land of fruits.

Taking the whole of North America, except the frozen regions of the British possessions, and Alaska, where few cultivated fruits can be grown; and half-civilized Mexico, where progress is scarcely known; the last thirty-five years have witnessed such advancements in fruit culture as seem almost beyond belief. It has truly been an age of triumph. Not only has the territory of its successful culture been wonderfully extended, but the whole plan and science of fruit-growing has been almost revolutionized. Old things have largely passed away. New varieties, new methods of culture and new markets for the products of the fruit farm have been found. Some of the old varieties have been retained, but many new ones have been originated here; some by chance and others by scientific breeding. Valuable kinds that had long been lying in obscurity have been brought into public favor. Others have been imported from foreign countries. Almost the entire world has been ransacked in order to obtain fruits that might prove of value to us.

At the beginning of this period of unparalleled progress the experiments of former years had shown the success or failure of the different species and varieties already in cultivation in many parts of the country; and now, at its close, after nearly forty years more of experience, there is scarcely a section within the entire domain of North American fruit culture where it is not quite well known what is and what is not adapted to each locality.

The methods of culture are changed from the old ones, which were largely those practiced in Europe, to such as have been evolved by the peculiar necessities of our soil, climate, and varieties. This is especially true of our vineyards; for, except on the Pacific slope, where the foreign grapes succeed, our native vines require much less severe pruning, and a much more roomy trellis upon which to grow than those old kinds. The first vineyards were planted very thickly and trained by the stake method, which is the French and German style. I remember working in such vineyards just prior to 1870, and of seeing the dwarfing and dwindling effect upon the vines. Nothing of the kind is now seen this side the Rocky Mountains, because our American grapes will not endure such treatment and continue to bear well.